OREANDA-NEWS. Fitch Ratings has assigned Pratama Agung Pte Ltd's USD300m 6.25% guaranteed senior unsecured notes due 2020 a final rating of 'BB-'. The final rating follows the receipt of documents conforming to information already received, and is in line with the expected rating assigned on 3 February 2015.

The notes are unconditionally and irrevocably guaranteed by Indonesian tower operator PT Solusi Tunas Pratama Tbk (STP; BB-/Stable) and are therefore rated at the same level as STP's Long-Term Issuer Default Rating (IDR) of 'BB-'.
STP will use the note proceeds to partially refinance its six-month USD790m bridge loan facility that was used to finance the acquisition of 3,500 towers from PT XL Axiata Tbk (XL; BBB/Stable) for IDR5.6trn (USD467m). The bridge loan of USD790m was partly refinanced through an equity offering of IDR2.4trn. A part of the equity offering included the conversion of shareholder loans of IDR462.5bn into equity. STP plans to refinance the rest of the bridge loan through a secured term loan.
KEY RATING DRIVERS

Higher Leverage and Smaller Size: STP's 'BB-' IDR is a notch lower than that of the top two independent tower operators in Indonesia - PT Tower Bersama Infrastructure Tbk (TBI; BB/Stable) and PT Profesional Telekomunikasi Indonesia (Protelindo; BB/Positive) - due to its higher leverage, earlier stage in the growth cycle and weaker organic growth capabilities. At end-2014, it was the third-largest independent tower operator with 6,651 towers and total tenancies of 10,521. TBI leads the industry with 15,200 towers followed by Protelindo with 11,200 towers.

Commitment to Deleverage: The ratings incorporate management's commitment to deleverage and our expectation that STP will manage its FFO-adjusted net leverage to well below 5.0x during 2015-16. In the absence of further debt-funded acquisitions, deleveraging is likely as capex will be modest and dividend payments are limited based on conditions in the proposed bonds and proposed secured term loan. STP is likely to add only around 500-600 towers during 2015-17 (2012-14: 100-400 tower additions) - much lower than 1,500-2,000 annual tower additions by TBI and Protelindo.

Nevertheless, should the company pursue growth through further debt-funded acquisitions, the ratings may be downgraded if FFO-adjusted net leverage rises above 5.0x

Moderate Tenancy Mix: STP's credit profile benefits from its ability to generate highly visible cash flows backed by long-term non-cancellable contracts with in-built escalation clauses (except for the lease agreements for the towers acquired from XL). Fitch forecasts STP's 2015 operating EBITDAR margin to be around 82%-83% - similar to Protelindo's 82% and higher than TBI's 75%-76%. We also forecast that 63% of STP's 2015 revenue will come from the country's three largest telcos, which have investment grade ratings. This proportion is better than Protelindo's 50%, but lower than TBI's 80%.

Notes Not Notched: Fitch's 'BB-' rating on the US dollar senior unsecured notes is based on average recovery in a distressed scenario, despite the notes ranking behind the proposed secured term loan. Prior-ranking debt/EBITDA is likely to be below the 2.0x-2.5x threshold at which we consider notching senior unsecured debt below the IDR. The high proportion of STP's operating cash flows that are contractually locked-in (USD1.1bn at end-2014) also supports recovery. Structural subordination is not an issue as STP generates over 90% of the group's revenue and EBITDA.

Adequate Liquidity: We believe that STP's liquidity is adequate. Its existing bridge loan is underwritten by five international banks and STP had the option to convert it into a four and a half year term loan if it was unable to issue the US dollar notes by 8 June 2015. The company plans to significantly hedge its US dollar debt exposure in 2015.

Historical Exposure to Bakrie: STP's 2014 financial performance was affected because PT Bakrie Telecom Tbk did not pay its rent. At end-September 2014, Bakrie Telecom accounted for 15% of STP's year-to-date revenue and owed around IDR489bn to STP. Compared to STP, both TBI and Protelindo have lower exposure to Bakrie Telecom at 3% and 4% of revenue respectively. In December 2014, Bakrie Telecom's creditors approved a restructuring plan, which allowed for 70% of receivables to be converted into Bakrie Telecom shares and the remaining 30% to be paid over five-seven years. Our financial analysis assumed no cash recovery from Bakrie Telecom.

RATING SENSITIVITIES

Positive: Future developments that could individually or collectively lead to positive rating actions include:

- FFO-adjusted net leverage lower than 3.5x on a sustained basis along with revenue contribution from investment-grade telcos remaining above 60%.
- Demonstration of organic growth potential in-line with its peers.

Negative: Future developments that could individually or collectively lead to negative rating actions include:

- Another debt-funded acquisition or higher-than-expected capex leading to FFO-adjusted net leverage remaining above 5.0x on a sustained basis.